4. Regulatory barriers - Low. Projects will be affected by prices or other environmental penalties for mercury, SO2, CO2, NOx, cooling water and ash, although new emission limits for conventional pollutants are addressing this to some degree. For some projects, permitting of infrastructure development can also be an issue. The regulatory barriers faced by this option appear to be lower than most of the other options considered in this report.
5. Role for Government - Medium. The central role for government will be creating a system to price GHG emissions or other regulatory structures, and creating incentives to effectuate fuel switching, such as providing support for infrastructure development, accelerating permitting, and minimizing the impact of capital outlay for the consumer.
6. Market barriers - relatively low. However:
• Lack of environmental penalties, including a carbon price, that are not reflected in the operating costs for coal.
• Perceptions of excessive volatility in natural gas prices/lack of awareness of hedging opportunities
7. Impact on jobs - Low but positive. Positive impacts due to increased use of gas, retrofit of existing facilities, preservation of at risk businesses, but negative impacts due to decreased use of coal and oil.
Potential Policies That Would Accelerate Deployment of This Technology
Policies that incorporate the relative superiority of natural gas’ environmental and efficiency attributes would result in accelerated fuel switching from coal/oil to natural gas through refueling and repowering.
These may include a carbon price signal and incorporation of environmental costs for upcoming rules regarding air toxics (HAPs MACT and Clean Air Transport Rule), cooling water (Clean Water Act) and ash (RCRA). Other examples are:
1. Implementation of more stringent criteria pollutant standards or other environmental regulations that reflect the environmental cost of producing power from coal
2. State/Federal grants for infrastructure funding. For example: New Jersey lawmakers passed a bill, S238139, on 1/10/2011 that would provide incentive payments for the construction of 2,000 MWs of natural gas-fired generation. A Colorado bill signed into law in 2010, HB 1365 required Excel to consider switching to natural gas or installing controls at some of its coal-fired power plants.
A Virginia bill would allow for natural gas to qualify as an “alternative fuel” under the state’s renewable portfolio goal (http://www.allbusiness.com/energy-utilities/utilities-industry-electric-power-power/15397115-1.html).
3. Accelerated depreciation for new infrastructure – Under the Federal Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation (2008-2012), businesses can recover
39 S.2381 can be accessed at: http://www.njleg.state.nj.us/2010/Bills/S2500/2381_R4.PDF.
Working Document of the NPC North American Resource Development Study Made Available September 15, 2011
investments in certain property through depreciation deductions. MACRs sets class lives for various types of property, which range from 3 to 50 years over which property can be
depreciated. Natural gas pipelines, gathering lines, and distribution lines that meet certain criteria qualify under this program.
4. State/Local fast track permitting processes 5. Loan guarantees for infrastructure development
6. Legislation that includes a production tax credit when emissions are reduced from a power plant efficiency improvement that includes refueling/repowering
7. Cap and trade or carbon tax policies that establish a price for emitting GHGs.
8. Regulation that establishes CO2 emission limits e.g. performance standards
Made Available September 15, 2011
Appendix E:
Building New Gas-Fired Power Plants
Working Document of the NPC North American Resource Development Study Made Available September 15, 2011
Displacement of Coal and Oil via Building New Natural Gas-Fired Power Plants Opportunity: Increased natural gas consumption in the electric power sector
Reduced GHG emissions in the electric power sector Description of Technology
Fuel switching to natural gas in the electric power sector has the potential to provide significant reductions in GHG emissions from coal-fired and oil-fired power plants as well as from low efficiency natural gas-fired power plants. Such GHG emission reductions could be achieved by retiring older coal and oil-fired power plants (and older, low-efficiency natural gas-fired power plants) and replacing the generation from these older plants by building new high efficiency natural gas-fired combined cycle (“NGCC”) power plants.
The potential emissions reductions from coal plant retirements and replacement by new NGCC plants are significant. Specifically, studies of coal plant replacement with new build NGCC power plants have an average annual potential emission reduction volume of 89 million MtCO2e (a range from 51 to 133 million MtCO2e) and an average marginal cost of $46.42/MtCO2e (a range from $13 to $64/MtCO2e).40 Moreover, in some regions coal plant retirements will result in the need for additional NGCC capacity.
One study finds 13,000 MW of cumulative natural gas additions will be needed from 2010-2020 and 20,500 MW from 2020-2030 to replace retiring coal plants.41
Implementation Hurdle
There are several challenges to such a shift from older plants to newer NGCC plants, including
• The older power plants may still be economic and therefore unlikely to retire absent some policy mandate, change in regulation, or incentive provided for their retirement.
• Excess capacity conditions in most U.S. regions42 result in reduced incentives to invest in new gas-fired generation unless a significant number of coal units retire due to a combination of poor market prices and tightening EPA regulations.
• The relatively low dispatch costs of existing coal-fired power plants versus NGCC plants (since coal prices tend to be lower than natural gas prices) as well as the fact that old coal plants are substantially depreciated also creates some inertia against a shift from coal units to NGCC units since such a shift would be costly for consumers. While dispatch costs for an efficient (9,000 Btu/kWh heat rate) coal plant might be in the range of $25/MWh, the dispatch costs for an efficient NGCC (7,000 Btu/kWh heat rate) plant might be in the range of $35/MWh (at a natural gas price of $5.00/MMBtu). Of course, the lower dispatch costs of coal are partly due to existing regulations in which the units with the highest GHG emissions (coal units) are not penalized.
• The perception that natural gas prices are more volatile than coal prices.43
40 NPC Carbon Subgroup technology team’s working draft, Figure 5.
41 “Natural Gas and Renewables: A Secure Low Carbon Future Energy Plan for the United States,” Deutsche Bank, November 2010, p. 32-33.
42 These excess capacity conditions can be seen in a recent report by the North American Electric Reliability Corporation (NERC). The NERC report shows current summer reserve margins in excess of 20% for most U.S.
regions. See “2010 Long-Term Reliability Assessment,” NERC, October 2010 (tables 5a-5f).
43 See, for example, the July 22, 2010 letter to the U.S. Senate from the Industrial Energy Consumers of
Made Available September 15, 2011
• A shift to more NGCC units is likely to require additional natural gas pipeline infrastructure.44 Nonetheless, many market observers are expecting a wave (40-65 GW) of coal plant retirements in the next 5-10 years due to stricter air quality regulations being implemented by the EPA.45 New NGCC plants are well-positioned to replace coal units due to their relatively low construction costs, short construction lead times, and high capacity factors (relative to intermittent resources like wind and solar).
Specifically, NGCC units have a levelized all-in cost of roughly $55-70 MWh assuming natural gas prices in the $5-$7/MMBtu range.46 At these levels, NGCC plants are cheaper than new nuclear, solar and wind (when wind is put on an equivalent reliability basis by adding costs of replacement energy and capacity, as well as new transmission capacity).47 In fact, gas-fired power plants will remain the most economic choice until CO2 prices reach $80-$100/ton, when coal with carbon capture and sequestration and nuclear plants start to become an attractive choice (but CO2 prices are not expected to reach this level until after 2030).48
Selection Criteria Evaluation
1. Maturity of technology - High - NGCC power plants have been built in many regions in the